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Economies of scale and the size of exporters
Exporters are few-less than one-fifth among U.S. manufacturing firms-and are larger than non-exporting firms-about 4-5 times more total sales per firm. These facts are often cited as support for models with economies of scale and firm heterogeneity as in Melitz (2003). The authors find that the basic Melitz model cannot simultaneously match the size and share of exporters given the observed distribution of total sales. Instead exporters are expected to be between 90 and 100 times larger than non-exporters. It is easy to reconcile the model with the data. However, a lot of variation ...
Diversification and development
This paper explores the relationship between sectoral diversification and economic development. We develop a risk-based methodology to assess countries' extent of industrial diversification. The industrial structure of a country tends to be risky when the country i) has a high sectoral concentration, ii) specializes in highly risky sectors, and/or iii) specializes in sectors highly affected by country-specific fluctuations. We document the following regularities. First, sectoral concentration declines and then increases with development. Second, industry-specific risk declines with ...
Economies at early stages of development are often shaken by abrupt changes in growth rates, whereas in advanced economies growth rates tend to be relatively stable. To explain this pattern, we propose a theory of technological diversification. Production makes use of different input varieties, which are subject to imperfectly correlated shocks. Technological progress takes the form of an increase in the number of varieties, raising average productivity. In addition, the expansion in the number of varieties in our model provides diversification benefits against variety-specific shocks and it ...
Why is GDP so much more volatile in poor countries than in rich ones? To answer this question, we propose a theory of technological diversification. Production makes use of different input varieties, which are subject to imperfectly correlated shocks. As in endogenous growth models, technological progress increases the number of varieties, raising average productivity. The new insight is that an expansion in the number of varieties also lowers the volatility of output. This is because additional varieties provide diversification benefits against variety-specific shocks. In the model, ...